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Contingency clauses in a real estate transaction 

On Behalf of | Jan 30, 2025 | Real Estate

When a commercial real estate transaction is set up, certain contingency clauses may apply. These can be put into the initial offer made by the potential buyer. Essentially, they are just saying that they are offering to purchase the property at a set price, but only if these contingencies are met. If not, then they have the freedom to walk away from the deal without a financial penalty.

For example, there is often a contingency clause revolving around securing financing. The buyer may have a preapproval letter from a lender, but they still have to go through and get final approval. If they’re not able to get the loan, then they don’t have to continue with the purchase.

Another example is a contingency clause regarding having an official inspection carried out on the property. If significant issues are found—roof defects, structural issues, etc.—then the buyer may be able to step away from their offer. They may also have the option to take the necessary repairs into account and adjust their offer accordingly.

Do people ever remove these clauses?

Yes, some buyers will remove contingency clauses. Most of the time, they are just doing this because they think it improves the odds that their offer will be selected. There may be other competing offers at similar levels of compensation. But it’s possible that a seller would prefer to take an offer without a contingency clause, as this lowers the odds that the deal will fall through. However, it is a risk to remove these clauses, as it means the buyer has no protection.

Contingency clauses are just one part of a real estate transaction that can influence how the process goes. It’s very important to understand all the legal steps to take as this moves forward.